Debt reduction strategies

Everything you need to know about taking control of your debt.

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For many of us, dealing with debt is an unfortunate side effect of everyday life. Whether it’s a home loan, credit card debt, car loan, personal loan or a combination of any of the above, debt can place you under huge financial pressure and be completely overwhelming.

But there’s plenty you can do to reduce your debt and seize back control of your finances. There are several debt reduction strategies available to help you get back in the black, so let’s take a closer look at each of them to work out which one is right for you.

Understanding debt

No two debts are the same and because of this, there is no one surefire way to reduce your debts. One of the main problems people run into is having too many separate debts to manage. If you take out a car loan, have multiple credit cards or a mortgage, then managing your repayments can get complicated. The first thing to do is to sit down and work out all of the different lenders you owe money to, how much money you still owe, what you are paying in interest and how much your repayments are. Then you can get a realistic amount which you're putting towards your debts each month.

When you break all of these debts down, you can identify the lenders to which you are paying the highest interest rates and fees. For example, you may have a couple of credit cards with higher interest rates than the others, or you may be paying more in unsecured personal loan fees and interest than you are for a car loan. By understanding your debts you can decide on an appropriate strategy to manage them. No matter how many separate debts you have to how many lenders, there are several debt reduction strategies which can help you take control of your repayments and better manage your debt. Take a look below at the debt reduction strategies which you may want to consider.

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Strategy #1: Snowball method

If you’ve done any research at all into taking charge of debt, you’ve probably heard of the snowball method.This debt reduction strategy gets its name from its ‘start small and get bigger’ approach to paying off your debts. The basic premise is simple: start by paying off the smallest debt first, then work up to the larger ones.

To get started, make a list of all your debts from the smallest amount to the largest. Don’t worry about the interest rate attached to those debts unless two amounts are the same – when this occurs, pay off the debt with the highest interest rate first.

Once you’ve finalised your list, it’s then a matter of making the minimum repayment on all debts except the smallest amount. For this debt, repay as much as you can afford each month until it is completely repaid, and you can then move on to the next amount on your list.

Why should you consider the snowball method?

The strength of the snowball method lies in its ability to let you start repaying your debts one small step at a time. As your debts are paid off one by one, your confidence in your financial management skills will grow and you may be able to gather the momentum you need to climb your personal mountain.

When might the snowball method not work?

The downside of this method is that it won’t always be the most cost-effective way to get out of debt. In many cases, tackling the largest debt or the amount accruing the highest rate of interest is the best place to start.

Strategy #2: Avalanche method

The snow theme continues with the avalanche method, which is also known as debt stacking. Rather than listing debts in order from the smallest to the largest amount, this method involves listing your debts from the highest interest rate to the lowest interest rate. Don’t worry about the dollar amount unless the interest rates on two separate debts are the same, in which case you pay off the higher amount first.

From this point on the process is quite similar to the snowball method. Pay the minimum payment on all debts except the one with the highest interest rate, towards which you should contribute as much as you can afford each month. Once this debt is repaid, move on to the next amount on your list.

Why should you consider the avalanche method?

The avalanche method is usually seen as a logical choice when selecting a debt reduction strategy. This is simply because it’s a more cost-effective way to pay down your debts, allowing you to spend as little as possible to get back on track.

When might the avalanche method not work?

The downside of the avalanche method is that it can initially take a while to pay off debts. While the snowball method provides quick gratification and the psychological boost of paying off small debts first, the avalanche approach doesn’t offer the same instant rewards. As a result, some people can become discouraged and lose their disciplined approach to debt repayment.

Strategy #3: Debt tsunami method

Many finance experts advise leaving your emotions out of it when reducing your debt – after all, letting our hearts rule our heads is one of the ways many of us ended up in debt in the first place. But the debt tsunami method, named by Adam Baker from Man vs Debt, advocates a different approach.

The idea behind the debt tsunami approach is to pay off your debts in order of their emotional impact. Instead of worrying about the amount you owe or the interest rate that applies, prioritise the debts that have the greatest psychological weight.

For example, while a $5,000 credit card debt at 15% p.a. may be costing you the most, you may first want to pay back the $1,000 your best friend loaned you interest-free when you fell on hard times.

Why should you consider the debt tsunami method?

While it’s impossible to deny the logic of finding the most cost-effective way to reduce debt, it’s also hard to go past the emotional influence debt can have over our lives. The strength of this approach lies in its ability to allow you to reduce the psychological impact of debt, and to find the necessary motivation to seize control of your finances.

When might the debt tsunami method not work?

The unavoidable truth is that there are cheaper ways to reduce your debt than the debt tsunami approach. If paying off your debt in the most cost-effective way possible is important to you, consider other options.

Strategy #4: Balance transfer credit cards

Have you accumulated debt across multiple credit cards? Are you struggling to manage the repayments and high interest rates for each separate credit card debt?

If so, you might be able to bring your credit card debt under control by consolidating multiple credit card accounts onto a single credit card with a balance transfer. There are myriad balance transfer credit cards available that let you move your debt over to a new card and take advantage of no interest charges for an introductory period – for example, 0% p.a. on balance transfers for the first 6 months.

Some credit card providers will also let youbalance transfer personal loan debt, providing another flexible option to help you bring your finances under control.

Why should you consider a balance transfer credit card?

It’s common knowledge that credit card interest rates can be painfully high, so taking advantage of a no-interest-rate period can be an excellent way to bring your debt under control. Only having to make one monthly repayment rather than several separate repayments for each individual debt can also make it much easier to manage your money.

When might a balance transfer credit card not work?

If you’re thinking of applying for a balance transfer credit card, remember that you’ll typically need a good credit history in order to be approved. You should also be aware that some card providers charge a balance transfer fee, and check the fine print to find out what interest rate will apply when the introductory period ends.

Data indicated here is updated regularly
$
% p.a.
Name Product Balance transfer rate Purchase rate Annual fee Amount saved
St.George Vertigo Classic
0% p.a. for 24 months
13.99% p.a.
$0 annual fee for the first year ($55 p.a. thereafter)
Get 0% p.a. promotional balance transfer rate, with no balance transfer fee. Plus, save with a first-year annual fee waiver.
Citi Rewards Card
0% p.a. for 30 months
21.49% p.a.
$49 annual fee for the first year ($149 p.a. thereafter)
Save on interest with 0% p.a. on balance transfers for 30 months with no balance transfer fee. Plus, a $49 first-year annual fee.
Westpac Low Rate Card
0% p.a. for 24 months with 1% balance transfer fee
13.74% p.a.
$59
A low rate card offering 0% p.a. interest on balance transfers for the first 24 months and a $200 cashback offer.
Coles No Annual Fee Mastercard
0% p.a. for 12 months
0% p.a. for 12 months, reverts to 19.99% p.a.
$0
Save on new and existing interest charges with 0% p.a. on balance transfers and purchases for 12 months. Ends 31 January 2021.
ANZ Low Rate
0% p.a. for 25 months with 1.5% balance transfer fee
12.49% p.a.
$0 annual fee for the first year ($58 p.a. thereafter)
Save with 0% p.a. on balance transfers for 25 months (with a 1.5% BT fee) and $0 first-year annual fee. Plus a 12.49% p.a. purchase interest rate.
HSBC Platinum Credit Card - Balance Transfer Offer
0% p.a. for 26 months with 1% balance transfer fee
19.99% p.a.
$0 annual fee for the first year ($129 p.a. thereafter)
Enjoy a 26-month balance transfer offer, a first-year annual fee waiver and complimentary travel insurance.
Bank of Melbourne Vertigo Classic
0% p.a. for 24 months
13.99% p.a.
$0 annual fee for the first year ($55 p.a. thereafter)
Save with a 0% p.a. interest for 24 months on balance transfers, with no balance transfer fee. Plus, a $0 first-year annual fee.
Citi Clear Card
0.9% p.a. for 15 months
0.9% p.a. for 15 months, reverts to 14.99% p.a.
$99
Save with 0.9% p.a. for 15 months on purchases and balance transfers. Plus, complimentary purchase insurance cover.
Coles Rewards Mastercard
0% p.a. for 18 months with 1.5% balance transfer fee
19.99% p.a.
$0 annual fee for the first year ($99 p.a. thereafter)
Enjoy $100 off a Coles Supermarket, a $0 first-year annual fee and a 0% p.a. on balance transfers for 18 months (1.5% fee applies). Ends 31 Jan 2021.
St.George Amplify Platinum - Qantas
0% p.a. for 15 months with 1% balance transfer fee
19.74% p.a.
$99
Earn 70,000 bonus Qantas Points, plus enjoy 0% p.a. on balance transfers for 15 months and complimentary insurance covers.
St.George Amplify Platinum
0% p.a. for 22 months with 1.5% balance transfer fee
0% p.a. for 7 months, reverts to 19.74% p.a.
$0 annual fee for the first year ($99 p.a. thereafter)
Save with 0% p.a. interest rates on purchases and balance transfers. Plus a $0 first-year annual fee.
St.George Vertigo Classic Rainbow
0% p.a. for 24 months
13.99% p.a.
$0 annual fee for the first year ($55 p.a. thereafter)
All the great low cost features of the Vertigo Visa with a rainbow design in support of the LGBT community.
St.George Rainbow Vertigo Platinum
6.99% p.a. for 12 months
0% p.a. for 15 months, reverts to 12.99% p.a.
$49 annual fee for the first year ($99 p.a. thereafter)
All the platinum features of the Vertigo Platinum Visa with a rainbow design in support of the LGBT community.
Westpac Altitude Platinum Qantas
0% p.a. for 18 months with 1% balance transfer fee
20.49% p.a.
$99 annual fee for the first year ($200 p.a. thereafter)
Get 60,000 bonus Qantas Points when you spend $3,000 within 90 days. Plus, a first-year annual fee discount and a long-term balance transfer offer.
Westpac Altitude Platinum Card
0% p.a. for 18 months with 1% balance transfer fee
20.49% p.a.
$99 annual fee for the first year ($150 p.a. thereafter)
Earn 80,000 bonus Altitude Points when you spend $3,000 within 90 days. Plus, a first-year annual fee discount and a long-term balance transfer offer.
Bank of Melbourne Amplify Platinum - Qantas
0% p.a. for 15 months with 1% balance transfer fee
19.74% p.a.
$99
Receive 70,000 bonus Qantas Points when you spend $1,500 each month for the first 3 months and earn up to 0.5 Qantas Points per $1 spent.
Bankwest Breeze Classic Mastercard
0% p.a. for 26 months with 2% balance transfer fee
10.99% p.a.
$0 annual fee for the first year ($49 p.a. thereafter)
Save with 0% p.a. on balance transfers for 26 months (with a 2% BT fee) and $0 first-year annual fee. Plus, a 10.99% p.a. purchase interest rate.
Bankwest Breeze Platinum Mastercard
0% p.a. for 26 months with 2% balance transfer fee
10.99% p.a.
$0 annual fee for the first year ($69 p.a. thereafter)
Get 0% interest on balance transfers for 26 months, a $0 first-year annual fee, complimentary travel insurance and no foreign transaction fees.
Westpac Altitude Platinum Credit Card - Existing Customer Offer
6.99% p.a. for 12 months
20.49% p.a.
$0 annual fee for the first year ($150 p.a. thereafter)
Westpac customers only: Earn 100,000 bonus Altitude Points when you spend $3,000 within 90 days. Plus, a first-year annual fee waiver.
Westpac Altitude Platinum Qantas – Existing Customer Offer
6.99% p.a. for 12 months
20.49% p.a.
$50 annual fee for the first year ($200 p.a. thereafter)
Westpac customers only: Get 75,000 bonus Qantas Points when you spend $3,000 within 90 days. Plus, $50 first-year annual fee.
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Strategy #5: Debt consolidation personal loans

Juggling multiple repayments can be costly and confusing, so you may want to consider consolidating all those debts into a single personal loan. Debt consolidation personal loans allow you to cut down the total amount you pay in interest charges, while it can also help you save money on fees.

There are unsecured personal loans available, or you may also be able to find the right loan by accessing the equity you have in your home. You also have the flexibility to choose a fixed- or variable-rate loan.

Data indicated here is updated regularly
$
Name Product Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Application Fee Monthly Service Fee Monthly Repayment
Plenti Fixed Rate Personal Loan

From 5.99% (fixed)
6.27%
$2,001
3 to 5 years
From $99 to $499
$0
You'll receive a fixed rate between 5.99% p.a. and 15.89% p.a. based on your risk profile
A flexible loan with amounts from $2,001 and terms starting from 3 years. Interest and comparison rates calculated for a loan term of 5 years.
Symple Loans Personal Loan

From 5.75% (variable)
6.47%
$5,000
1 to 7 years
from 0% to 5% of the loan amount
$10
You'll receive a personalised interest rate from 5.75% p.a. to 25.99% p.a. based on your risk profile
Borrow up to $50,000 to pay for what you need.
Harmoney Unsecured Personal Loan

From 6.99% (fixed)
7.79%
$2,000
3 to 5 years
$575 ($275 for loans of below $5,000)
$0
You'll receive a fixed rate between 6.99% p.a. and 25.69% p.a. based on your risk profile.
Apply for a loan up to $50,000 and repay your loan over 3 or 5 years terms.
OurMoneyMarket Personal Loan

From 6.75% (fixed)
6.96%
$2,001
1 to 7 years
1.5–6% of your total loan amount
$0
You'll receive a fixed rate from 6.75% p.a. to 20.99% p.a. based on your risk profile
A personalised loan from $2,001 to $75,000 that varies based on your credit history and financial situation.
ANZ Fixed Rate Personal Loan
10.50% (fixed)
11.38%
$5,000
1 to 7 years
$150
$10
You'll receive a fixed rate of 10.50% p.a. ( comparison rate 11.38% p.a. )
Apply for up to $50,000 to use for a variety of purposes without needing to add security. Available to self-employed applicants. Note: These rates are available until 31 March 2021. Credit, eligibility criteria and terms & conditions apply.
Alex Personal Loan

From 6.95% (fixed)
6.95%
$2,100
6 months to 5 years
$0 (waived $295)
$0
You'll receive a fixed interest rate from 6.95% p.a. to 19.99% p.a. based on your risk profile
Borrow between $2,100 and $30,000 from 6 months to 5 years. Benefit from no ongoing fees. Note: Waived $295 establishment fee for all applications submitted before 15 February 2021.
SocietyOne Unsecured Personal Loan (5 years)

From 7.99% (fixed)
7.99%
$5,000
5 years
from 0% to 5% of the loan amount
$0
You'll receive a fixed rate between 7.99% p.a. and 20.49% p.a. based on your risk profile
A loan from $5,000 to use for a range of purposes. Benefit from no ongoing fees and no early repayment fee.
SocietyOne Unsecured Personal Loan (2-3 years)

From 6.99% (fixed)
6.99%
$5,000
2 to 3 years
from 0% to 5% of the loan amount
$0
You'll receive a fixed rate between 6.99% p.a. and 17.99% p.a. based on your risk profile
A loan from $5,000 to use for a range of purposes. Benefit from no ongoing fees and no early repayment fee.
CUA Unsecured Fixed Rate Personal Loan
9.39% (fixed)
9.64%
$5,000
1 to 7 years
$175
$0
You'll receive a fixed rate of 9.39% p.a.
An unsecured loan from $5,000 with flexible repayments and no monthly fee.
Latitude Personal Loan (Unsecured)

From 7.99% (fixed)
9.24%
$3,000
1 to 7 years
$250 (Loans under $5000 - $140)
$13
You'll receive a fixed rate between 7.99% p.a. and 22.99% p.a. based on your risk profile
Apply for what you need from $3,000 and use it for a range of purposes. Repay weekly, fortnightly or monthly. You can check your interest rate before applying with no impact to your credit score.
NAB Personal Loan Unsecured Fixed

From 9.99% (fixed)
10.88%
$5,000
1 to 7 years
$150
$10
You'll receive a fixed rate between 9.99% p.a. and 18.99% p.a. ( 10.88% p.a. to 19.83% p.a. comparison rate) based on your risk profile
An unsecured loan up to $55,000 you can use for a range of purposes and pay off over up to 7 years. Note: Majority of customers will get the headline rate of 12.69% p.a. (13.56% p.a. comparison rate) or less. See Comparison rate warning in (i) above.
ANZ Variable Rate Personal Loan
12.99% (variable)
13.86%
$5,000
1 to 7 years
$150
$10
You'll receive a variable rate of 12.99% p.a. ( comparison rate 13.86% p.a. )
A flexible loan with amounts starting $5,000 that offers flexible repayments and a redraw facility. Note: These rates are available until 31 March 2021. Credit, eligibility criteria and terms & conditions apply.
Wisr Personal Loan

From 7.95% (fixed)
8.22%
$5,000
3 to 5 years
$195 (Establishment Fee)
$0
You'll receive a fixed rate between 7.95% p.a. and 19.95% p.a. based on your risk profile
A loan from $5,000 that charges no fees for extra or early repayments. Keep in mind security is required in some cases.
Plenti Variable Rate Personal Loan

From 5.59% (variable)
6.25%
$2,001
1 to 3 years
From $99 to $499
$0
You'll receive a variable rate from 5.59% p.a and 12.89% p.a. based on your risk profile
A flexible loan with amounts from $2,001 and terms starting from 12 months. Benefit from transparent costs and a rate estimate before you apply.
MoneyMe Personal Loans

From 6.25% (fixed)
7.64%
$2,100
1 to 5 years
from $295 to $495
$10
You'll receive an interest rate between 6.25% p.a. and 19.95% p.a. based on your risk profile
A flexible personal loan from MoneyMe with access to cash when you need it.
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Why should you consider a debt consolidation personal loan?

Debt consolidation personal loans can help reduce your interest payments and loan fees – you only have to pay interest and monthly fees on one loan, not across several debts. They can also make it easier for you to manage your finances, as you only have to worry about making regular repayments on one loan.

When might a debt consolidation personal loan not work?

Many lenders will only accept borrowers with a good credit history, so finding funding from a reputable lender can be difficult for borrowers with bad credit. You’ll also need to read the fine print and make sure you’re fully aware of the interest rate, fees and charges that apply to a debt consolidation loan so you can be sure it will actually save you money.

Strategy #6: Part 9 debt agreements

A part 9 (or part IX) debt agreement is a binding agreement between you and your creditors. When you enter into one of these agreements, you commit to pay a sum of money that you can afford in order to settle your debts.

A part 9 debt agreement is an act of bankruptcy which, while different from declaring yourself bankrupt, can have serious financial consequences. With this in mind, you’ll need to carefully consider your options before deciding whether it’s the right choice for you.

Why should you consider a part 9 debt agreement?

If you’re under significant financial pressure and struggling to repay your debts, a debt agreement can help you avoid bankruptcy, get your creditors off your back and stop you sinking even further into the red.

When might a part 9 debt agreement not work?

You should consider all other debt reduction options before entering into a debt agreement. Not only will the debt agreement appear in your credit file for five years but your name will also be entered on the National Personal Insolvency Index (NPII) for a limited period of time. This can have a huge impact on your ability to access credit.

And if you fail to keep up with the repayment schedule outlined in the agreement, you can lose your secured assets and your creditors could apply to the court to have you declared bankrupt.

Which debt reduction strategy is right for you?

This depends on a range of factors. Everyone’s financial circumstances are different, no two debts are the same, and the psychological approach you have towards debt can have a big impact on your choice of strategy.

The most important thing you can do is create a plan and stick to it. Work out which strategy you want to use and decide on a realistic and affordable way to start taking control of your debt.

And remember that if you need help, the National Debt Helpline provides a free financial counselling service. For independent and confidential advice, phone 1800 007 007.

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Personal Loan Offers

Important Information*
Logo for Harmoney Unsecured Personal Loan
Harmoney Unsecured Personal Loan

You'll receive a fixed rate between 6.99% p.a. and 25.69% p.a. based on your risk profile.
Apply for a loan up to $50,000 and repay your loan over 3 or 5 years terms.

Logo for ANZ Fixed Rate Personal Loan
ANZ Fixed Rate Personal Loan

You'll receive a fixed rate of 10.5% p.a.
Apply for up to $50,000 to use for a variety of purposes without needing to add security. Available to self-employed applicants. Note: These rates are available until 2 February 2021. Credit, eligibility criteria and terms & conditions apply.

Logo for NAB Personal Loan Unsecured Fixed
NAB Personal Loan Unsecured Fixed

You'll receive a fixed rate between 9.99% p.a. and 18.99% p.a. ( 10.88% p.a. to 19.83% p.a. comparison rate) based on your risk profile
An unsecured loan up to $55,000 you can use for a range of purposes and pay off over up to 7 years. Note: Majority of customers will get the headline rate of 12.69% p.a. (13.56% p.a. comparison rate) or less. See Comparison rate warning in (i) above.

Logo for SocietyOne Unsecured Personal Loan
SocietyOne Unsecured Personal Loan

You'll receive a fixed rate between 6.99% p.a. and 20.49% p.a. based on your risk profile
A loan from $5,000 to use for a range of purposes. Benefit from no ongoing fees and no early repayment fee.

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